Energy experts and economists weigh in on the government decision to implement a massive increase in fuel oil prices.
'If you are increasing price to recover subsidy, that is no longer a subsidy'
Dr Ijaz Hossain is a member of the panel of advisors, FBCCI and Professor at the department of chemical engineering, Buet
We all know that there is a crisis going on in the world market and the Bangladesh government does not have enough money to buy fuel from the market. It is trying to collect money from different sources but it is not enough.
The government had three options: they could put pressure on the economy, the administration or the common people, and guess what? The government decided to put pressure on the common people.
At present, everything is overpriced in the country and currently the inflation rate is almost 10%. The fuel price hike will definitely lead to another price hike in the market, which will eventually affect the common people. This is completely unacceptable because this could have been avoided.
There are mainly two kinds of pricing in the world- one is administered pricing and the other one is market pricing.
Administered pricing is a pricing system where the price of a good or service is dictated by a government or centralised authority and not by market forces. The Bangladesh government prefers this one, as they think this would be safer for the people.
Market pricing is the system where the price is fixed by demand and supply. The price of LPG (Liquefied Petroleum Gas) was fixed by the market here in Bangladesh.
There was a time when the price of a gas cylinder had spiked to Tk1,400 and then it dropped to Tk900. Over the years, the price has remained within this range.
The people have accepted this because they know whatever happens, the price will remain within this boundary and they have found a consistency here. If the price increases in the world market, the gas price will rise as well.
On the other hand, historically, the price of oil is controlled by administered pricing in Bangladesh. The thing with administered pricing is - it will never touch the highest ceiling of the market price because of government subsidies.
But if administered pricing is similar or even higher than the market, why would I buy from the government? It is better if the market controls the price because then, at least I will have a reason to console myself for the high prices.
If the government says that they are adjusting the oil price with the world market, it would be a false statement because administered pricing is not supposed to be doing that.
If this is how you are adjusting the price, then it is better if you let go of it and let the open market decide the price.
This is what we have been saying to the Bangladesh government to do for a decade, but they did not listen because according to them, the market will not be able to control the oil price.
When people are asking about the price hike, the government is talking about subsidies. The common people are not supposed to pay for the subsidies because if you are increasing the oil price because you want to recover the subsidised money, that is no longer a subsidy.
The government could have suggested a tax on fuel. They could have announced a 40% tax on oil for a particular period of time because reserves are limited and they do not have enough money to import fuel, like India. That way we could all have adjusted with it over time.
But you just cannot put such a huge pressure on everyone like this. This is highly unacceptable.
It is evident that the government has no money to import oil and now they are imposing pressure on the common people. It is a case of misgovernance.
It has not been long since the government increased the diesel price but we had tolerated that one and adjusted to it. We did not think something similar would happen so soon. Now, an even bigger price hike like this will hit the low and middle income-people hard.
'If BPC can keep its surplus, it can handle its own expenses'
Dr Khondaker Golam Moazzem is the research director at Centre for Policy Dialogue (CPD)
The recent price hike of oil, the highest in the last couple of years, will increase the daily expenses of ordinary people. Especially sectors that run on diesel, such as transport, agriculture, electricity and even the manufacturing industry, will face an increase in the production cost, which will eventually affect their consumer groups in the long run.
Now, transport owners will sit with the government to adjust the transport fare to the increased diesel price, and this will reveal how the consumers will be really affected. I think we will see this very soon.
Diesel is widely used in the agriculture sector for irrigation. As a result, in the dry seasons, when boro rice and other crops are cultivated, the price of these harvested crops will increase, which will affect the kitchen market.
The diesel-run captive power based electricity plants are currently inactive, so we might not see a price hike in the electricity sector immediately, but the individual captive power-run power plants will face the impact. And the factories that use diesel will see an increase in the production cost also. So, we think there will be an overall increase in daily expenses.
This will have an impact on the prevalent inflation as well. What we think is - this sudden increase of fuel price was mainly to fulfil the conditions of donor organisations like IMF for loans, and the government did this as a part of their management of subsidies. And we feel this was not fair on the common people.
Instead what they could have done for the management of subsidies is - they could have worked on the structural weaknesses. For example, every year the Finance Ministry takes the surplus money of Bangladesh Petroleum Corporation (BPC). If BPC could keep the money, then the organisation could tackle such emergency situations, and it would not need subsidies. So if the government stops taking money from BPC, we believe it will be able to handle its expenses on its own. And then maybe price hikes like this would not be necessary.
Similarly, for the electricity sector, we feel the consumers should not be burdened with the increased price. Instead what the government can do is move out from the capacity charge or payment system, which is highly subsidised, and look for long-term constructive and durable solutions.
'Make the prices consistent with the international market'
Dr M Tanim is Professor at the department of petroleum and mineral resources engineering at Buet
I do not think this much hike is logical at all, because the oil price is decreasing in the global market at this moment. The price of diesel/refined oil has come down from $170 to $136 now.
Considering this, our price should have been reduced. There is no doubt we have bought oil at higher prices – and for that, we have subsidised Tk8,000 crores.
But now, when the global price is decreasing, I do not understand the logic behind increasing the oil price in Bangladesh. At least not to this extent because this price will never be reduced in future and will continue to be a big problem.
If we say that we will reduce the price in future, we have to do it in a transparent way – how much profit we are making, the cost at breakeven - every detail has to be considered.
On the issue of the government subsidising the Bangladesh Petroleum Commission (BPC), the BPC has been subsidised by such amounts in the past as well. But when the BPC made Tk40,000 crore in profits, where was the price decreased then? It did not.
If you continue to increase the price when it is increased in the global market, but do not decrease it when it falls in the international market, people will lose confidence in the government's decisions. It might even anger them.
We have already said we are not in favour of subsidies. But my point is, as I mentioned already, you have to make the prices consistent with the international market. Withdrawing subsidies all of a sudden will have adverse effects on the economy.
This time, the impact on inflation can be far worse than the time when diesel price was increased by Tk15. The common people are already struggling on the purchasing power front; this time it will affect them further.